Firm X and Firm Y Compete Within the Same Industry

Multiple Choice

Firm X and Firm Y compete within the same industry and have the same sales volumes and costs other than the following items: Firm X manufactures its product using large amounts of direct labour. Firm Y has replaced direct labour with investment in machinery. Projected sales for both firms are 15% less than in the previous year. What will be the projected profits for Firm X compared to Firm Y?

A) Firm X will lose more profit than Firm Y.
B) Firm Y will lose more profit than Firm X.
C) Neither Firm X nor Firm Y will lose profit.
D) Firm X and Firm Y will lose the same amount of profit.